What if you go bust?
My story for The Financial Times magazine
A meeting room in Essex. Bright lights, long table, blue carpet. On the wall, a signed photograph of the actor David Jason. As an icon to preside over insolvency proceedings, it would be hard to think of anything more appropriate than the original Del Boy.
The real businessman at the centre of today’s meeting – who prefers not to be named – looks a sorry sight. His nose lies squashed to one side, like a boxer’s. His hair has been combed a little too neatly. Every so often, he fiddles with the knot of his tie.
In brief, Mr L’s story runs thus. He had a business, buying and selling raw materials. Not long ago, some of his product turned out to be defective – it almost killed a machinist. This led to the loss of his three biggest customers, who between them accounted for business worth £650,000 a year. Soon after that, Mr L’s business collapsed.
That’s why Louise Brittain – one of the country’s foremost insolvency practitioners – has come to Southend. She’s here to interview Mr L on behalf of creditors who delivered to him six lorry-loads of raw material for which they have not been paid. Brittain has come to find out what happened, and also whether Mr L has any assets which can be turned into money to console her clients.
“You made a loss, then?” she asks. (As part of her interview technique, honed by former police detectives, Brittain sometimes pretends to be confused.)
“Oh, massive. That was the downfall of the whole thing.”
Each year, around 14,000 companies in England and Wales go bust. That number is slowly falling, but personal insolvency – bankruptcy – is on the rise. DTI figures released this month [May] show that 7,662 people went bankrupt in the first quarter of 2000, the highest number in six years. The most publicised bankrupt of recent times is the former Tory MP, Jonathan Aitken, who reportedly owes around £2.4m, much of it stemming from his failed libel case against the Guardian and Granada TV. The firm representing Aitken’s creditors is Baker Tilly; and the person in charge of bankruptcy work is Brittain.
What kind of a person becomes an insolvency practitioner? Brittain, who is not tall, wears round specs and little make-up. At 33, she looks like a schoolgirl with a pronounced scholastic bent. But when she opens her mouth a more powerful personality emerges. Her forte is black comedy, notably stories about insolvency: “Did I mention the bankrupt who had two wives?” she asks, before launching into the first of many droll anecdotes, this one about a long-distance lorry driver.
She’s also uncommonly brave. Despite the presence of a journalist in her passenger seat, she displays a robust scorn for the Highway Code by driving the wrong way down a one-way street, directly in front of Southend County Court. Braver still, she shrugs off the threats which have been issued in her direction by the nastier sort of bankrupt. “It’s usually ‘I’ll get you,’” says Brittain, who does not use the surname Brittain outside work. “Or, ‘I know where you live.’” (In 1989, an angry debtor locked her inside a cupboard and didn’t let her out for two hours.)
But she’s surprising sympathetic towards people under financial strain. “It’s difficult, in this country, for small businesses to survive,” she says in a moment of rare seriousness. “There’s a lack of support. The tax system is difficult to understand without an accountant, and that costs money. Most entrepreneurs are not Richard Branson, they’re just trying to support their families.” When Brittain was growing up, her parents, both professional musicians, would drink a toast each year to avoiding bankruptcy. Even now, her own finances aren’t entirely in order, but she says: “With what I’ve seen, you don’t tend to worry about a couple of grand on Barclaycard.”
The biggest bankruptcy in British history involved Kevin Maxwell: his personal debts, worth £406.5m, were discharged in 1995. But not all bankruptcies involve large sums of money. According to the Insolvency Act of 1986, you can be made bankrupt if you find yourself unable to repay just £750.
If that happens, your life will be turned upside-down. Creditors’ representatives such as Brittain – trustees in bankruptcy, as they’re officially termed – will work round the clock to extract cash from your assets. They’ll take your car, and then – after a year’s grace – your family home. They’ll seize your pension, and any life policies. Freeze your bank and building society accounts (no more hole-in-the-wall cash till you set up a new account). They’ll confiscate files from your solicitor and your accountant. And in the course of their investigations your home may be raided.
In addition to these practical inconveniences, you’ll probably feel terrible guilt. British society does not smile on bankrupts, and for that reason bankrupts are excluded from many areas of public life – not just not barred as MPs and magistrates. You may not find yourself on the front page of the newspapers – as did Maxwell and Aitken – but the trustees will need to interview your creditors and former business partners – and the bankruptcy will be advertised by the Official Receiver in your local paper and elsewhere – so your distressing condition will certainly become known to a large chunk of your acquaintance.
If you’re married, your marriage will come under immense strain. The vast majority of bankrupts are men, and in many cases their debts are settled by their wives. This often has a profound effect on the power structure within the marriage. Consider, for instance, the bankrupt whom Brittain strenuously urged to find someone to pay off his debts. Not only did he fail to do so, but when Baker Tilly decided to repossess his home, he failed to inform his family. “We changed the locks,” says Brittain, “and when the kids got back from school they found our note on the door.” Only some days later did the man phone to ask where his possessions had all gone. In the end, his debts – amounting to around £70,000 – were paid off by his brother; and Brittain recently received a phone call from the man’s wife. What did she say? ”’Thank you for helping so much.’ I told her I hoped she would manage the family finances from now on.” Given the chance, says Brittain, many wives prove to be highly efficient housekeepers: she can think of one who charges her husband rent. “Women are being liberated by the bankruptcy process.”
In many cases, bankruptcy is accompanied by divorce. Tragic? Not always, because occasionally bankrupts have been suspected of protecting their assets through a divorce of convenience. Jonathan Aitken, for instance, continues to live in a five-story Queen Anne house, in Westminster, though he claims it belongs to his ex-wife. Under the terms of their divorce, Lolicia Aitken gained possession of the house, furniture, paintings, and land in Australia. As in any case where divorce occurs within five years of the bankruptcy order, the trustees are examining this transfer of assets with the closest scrutiny.
Brittain will not discuss the Aitken case directly, but press reports give some idea of the assets already realised. The first to go included a Rolex Oyster, cufflinks (sold to the boxer Chris Eubank for £7,500), a personal computer, and a Jeep. Books from Aitken’s personal library with a value of £100 or more were also auctioned, raising a total of £8,000. Baker Tilly initially sought legal advice as to whether Aitken’s private correspondance should be considered an asset, but a High Court judge determined that selling personal letters would be a ‘gross infringement of privacy’. (Baker Tilly was obliged by insolvency regulations to replace the watch with an alternative of “reasonable” quality.) The trustee also receives income from a private company Aitken set up to receive payments for his recently published memoir, Pride and Perjury; and is currently attempting to seize lump sums from his parliamentary and company pensions.
From one case to the next, the assets can vary enormously. Among the 200 or so cases being dealt with by Baker Tilly, there’s one which involves a coat that may possibly have belonged to John Lennon – and would thus possess considerable value. (The bankrupt in question claims this garment belonged to his granny.) Another bankrupt recently had returned to him a range of assets including 12 coi carp. These fish, which can each be worth £3,000 or more, must count among the most difficult assets a trustee is ever going to deal with – just keeping them alive counts as quite an achievement. Similarly, Brittain once took control of a food company and had to sell the produce before it went off. (“Oh, God, all those bloody cabbages. Binfuls of them.”)
Having studied the Chancellor’s recent Budget, Brittain believes there was little in it to help farmers and manufacturers: she expects more work to come in soon from those sectors. She also has an eye on dotcoms. “We’re rubbing our hands, waiting for the first net people to go bust. This way please!” But the trouble with [dotcoms] is that they have no assets.” Anybody else she’d like to deal with? “I’d love to do Branson, that would be brilliant.”
Can bankruptcy happen to anybody? “I don’t think so. Not if you’re realistic and try to manage your finances.” As a type, bankrupts possess remarkably similar traits. Notably: boundless optimism and an ability to ignore the most appalling problems. For those reasons, it’s not unheard of to encounter serial bankrupts (three bankruptcies in a row is the most Brittain has encountered). If you’re worried about entering commercial arrangements with such people, just ask everybody you deal with if they’ve ever been bankrupt: the law requires a truthful answer. But the question – you should realise – might put a strain on your commercial relationship. (Another, slightly different problem is caused by the “phoenix”, a company director who repeatedly leaves debtors unpaid by pulling the plug on one business and then starting up a new one. The DTI takes this behaviour more seriously now than previously; and the culprits are frequently disqualified as company directors. After that, many of them move their operations into the black economy. Mix with them at your peril.)
To help people assess their financial situation, Brittain has produced a 12-point checklist. “Do you receive monthly demands for payments which you cannot meet?” runs the first question. “Are your credit card payments lower than the monthly interest accrued?” runs another. “Have you started a business without sufficient working capital? Anybody answering “yes” to eight or more questions is probably on the brink of ruin. “People should call us,” says Brittain, who also provides “Five Tests of Insolvency” on the back of her business card. “The first hour of advice is free,” she says. “The biggest problem is that people come to us too late. They usually say, ‘I’ve got this friend…’”
Back in Southend, in the case of Mr L, there seems to be little in the way of assets. His Mitsubishi Shogun has already been repossessed by the finance company. On the way out, Brittain wishes him luck; and after slipping back into her own vehicle explains why she conducted the meeting in such friendly spirit. “If you’re confrontational,” says Brittain, whose interview technique has been polished by former police detectives, “people don’t tell you anything.” Mr L, she believes, has been open and honest.
That’s not unusual, but on the other hand plain-dealing is not something Brittain expects from bankrupts as a matter of routine. In many cases, if she believes debtors have given false information – or not provided information at all – she summons them to court for examination under oath. It’s already occurred in the Aitken case. and that’s what she’s done this afternoon: hauled before a judge one of the most slippery bankrupts on her books – also, conveniently, in Southend.
Mr D – who managed for a long period to conceal his bankruptcy even from his wife – is a former accountant who continued to sign off his own accounts despite being struck off. (His principal creditor, Brittain’s client, is the Inland Revenue). Mr D has already been imprisoned, once, for failing to co-operate – and he knows that could happen again.
In the judge’s chambers, Mr D sits uncomfortably upright – slouching defensively to the left, as if somebody had slipped a brick beneath his right buttock. His fingers lie meshed over his groin. He tends to avoid looking at Brittain, and answers questions from her barrister, Chris Boardman, with studied rectitude. “I have not used a credit card for several years,” he says at one point.
Brittain takes notes silently, occasionally scrawling messages to her assistant, Kirstie Provan. The judge, rubbing his temples with thumb and forefinger, looks bored, but occasionally interrupts with a sharp observation which shows he’s paying attention. Boardman’s questions, considered individually, are unsensational. But the interrogation is relentless – covering every conceivable aspect of income and expenditure – and after a time it produces some valuable information. Most importantly, Mr D reveals today the existence of two properties he has not previously mentioned.
Finally, Boardman reads what he calls a “shopping list” of eleven items for Mr D to send Baker Tilly; and the judge adjourns this session. Immediately afterwards, in the lobby outside, Boardman whispers to Brittain. Then they turn to Mr D with menace, and on behalf of Baker Tilly, Boardman makes a stern announcement: “Let me explain,” he says, “that I purposefully did not ask the court – in view of the helpful way we conducted this meeting – to give you a deadline. But there has already been a delay, and you must understand that we require the swiftest possible response. If there is any delay, we will be back here. And then there will be more… difficulty.”
ON THE BOOKS
Baker Tilly, which takes its fee from the money it recovers, achieves full repayment in fewer than ten per cent of its cases. More frequently, it pays creditors just 50p in the pound – and that’s because the firm accepts only those jobs where there seems a reasonable chance of realising some cash.
Each week, at Baker Tilly’s office in Bloomsbury, Brittain meets her youthful team for an update on their cases. An irreverent tone is established early, when one junior member of the team asks Brittain for advice on some troublesome opponents: “Should I tell them to bugger off?” he queries.
Going round the table, each member makes a report. “Mr H is coming in on Monday,” announces Miles Needham. “We’re going to ask why he hasn’t replied to our letters. He’s got a lot of houses. We think we’ve got the full list, then another one turns up. Two of them he claims to have given to his wife. And there’s another one, known only as ‘the Liverpool property’.” “Have you got a Land Registry search?” asks Brittain. “Yeah, and from Lytham as well – and they’ve both come back negative.”
According to Paul Webster, a woman has made a derisory offer for settlement of certain debts. Brittain commands: “If she doesn’t raise it to £10,000, we’re not taking her seriously.”
Kirstie reports the emergence of a bankrupt’s dodgy bank account. “There’s this account that was in the business’s name,” she says, “but now it’s his girlfriend’s.” A colleague suggests: “Can’t we get a private investigator on him?”
Finally, Alistair, with some good news. “On my last one,” he summarises, “we’re paying 100 pence in the pound.”
Before the meeting finishes, Brittain holds up to the general view a wodge of paper. “Look what I’ve got!” It’s a document from the DTI, draft proposals for bankruptcy reform. The government hopes to import US practices, which it considers helpful to entrepreneurs.
As things stand, British bankrupts are usually discharged after three years. The DTI suggests shortening that period to six months in cases where the bankrupt is “honest”. Another proposal is to repay the bankrupt ahead of all unsecured creditors for any money they can show they have invested in their business.
“Great – so when can I go bankrupt?” asks 22-year-old Kirstie, whose precocious cynicism must surely be attributed to the nature of her work.
For practical reasons, Brittain disapproves of the DTI proposals. First, she says, unsecured credit will become hard to find. Second, it’s not unusual for trustees to receive paperwork from the Official Receiver only after three months; and they must wait a year before repossessing a family home – six months too late, if the trustee has been discharged.
What’s more, she quibbles with the idea of “honest” bankrupts. “The biggest cause of bankruptcy is financial mismanagement. To suggest that people simply wake up one morning and find themselves bankrupt is a nonsense.”
It would make more sense, she believes, to raise the level of debt required for bankruptcy from £750 to £3,000 and to keep current constraints in place. “Support for bankrupts is not the point. The government should support people before they get that far.”
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